Digital music revives recording industry's revenue drop
By Lisa Wakeland, Staff Writer
April 18, 2007 | 7:54 p.m.
With the advent of Napster at the dawn of the new millennium, digital music evolved into a worldwide force. Early efforts to stop illegal downloads had little effect, and the digital phenomenon continues to gain strength.
Eric Garland, CEO of BigChampagne, a company that tracks Internet file sharing, said the MP3 has become a consumer standard, much like a CD or cassette tape. Sudden restrictions on the use of an MP3 file have confused music buyers who are familiar with buying recorded music and having no limits on use.
“We thought Napster would be a hugely disruptive force, and that over the course of a few years, we would see digital music take a seat alongside compact discs,” Garland said. “It is fascinating to think what might have been if the recording industry had tweaked Napster as a licensed distribution platform while all of us were experimenting with it.”
Instead of embracing the peer-to-peer method of file sharing, the recording industry and artists like Metallica and Dr. Dre attacked the service. The result was an injunction forcing Napster to stop trading copyrighted material, and the network shut down in 2001. Ironically, the courtroom win for the Recording Industry Association of America (RIAA) would ultimately have devastating effects on music sales.
Record sales peaked in 2000 and have been steadily declining over the past six years, resulting in a $2.5 billion loss in revenue. Albums that would have easily gone triple or quadruple platinum in the past are having a hard time in the modern music climate. The Red Hot Chili Peppers' latest release, Stadium Arcadium, was the third best-selling rock album of the year (2006), but it sold just 1.7 million copies.
“This was probably the worst period for new releases in the history of the music business,” Jim Urie, President of Distribution for Universal Music Group, said. “Your fan base has no reason to go to the music store, and they fall out of the habit.”
Eric Gunn, owner of Haffa’s Records, said he personally doesn’t care if people download music, and if the industry were smarter, it would still sell CDs. He still sees the benefits of owning a physical copy of the music. “If your computer crashes and you didn’t back up the music, you have nothing,” he said.
Peer-to-peer sharing offers users easy access, unlimited selection, familiar formats, and it’s free, Garland said about the attraction to the download services. However, attempts to stop digital download services by the RIAA aren’t unmerited. In 1998, Congress passed the Digital Millennium Copyright Act, which tries to prevent copyright infringement on the Internet. Six years after the act was passed, record sales were declining, and downloading was still in full swing.
Further efforts to combat illegal file sharing used section 512 of the act, which required Internet service providers like Verizon to give user information to the RIAA when customers were found to have illegally obtained copyrighted material on their computers.
U.S. District Court Judge John Bates, who presided over one landmark case in 2003, wrote that Verizon’s interpretation of the act would give illegal file sharers shelter from the Digital Millennium Copyright Act and allow infringement to flourish. Following the ruling, the RIAA slammed thousands of people with lawsuits for possessing copyrighted material. It appeared that no person was safe – even students at Ohio University got into trouble for downloading music.
These lawsuits had an enormous impact on public consciousness. Everything from attitudes and understanding about issues like intellectual property, online copyright and what constitutes infringement changed, Garland said.
But even though the public may be scared about getting slapped with a hefty lawsuit from the RIAA – fines can be up to $150,000 per song – there is no shortage of music on the Internet. Type “free music” into a Google search, and the result is 783 million hits. By adding “download” to the search, it still yields over 300 million hits.
One of these free music sites is Wolfgang’s Vault, a Web site that streams concerts by artists ranging from Led Zeppelin and Neil Young to Pearl Jam and Madonna. Owner Bill Sagan purchased the large archive from San Francisco promoter Bill Graham in 2003, but artists like the Grateful Dead and Carlos Santana filed a lawsuit against the site in December in an attempt to stop the free flow of music.
Graham made the recordings with the knowledge of the bands, but artists claimed the recordings were never intended for use in this manner. Currently, the front page of Wolfgang’s Vault states that the Web site pays the artists through various performing rights organizations, similar to the compensation they would receive for radio play.
Although many efforts are made to curb downloading, digital music continues to make a huge impact on the industry. Digital sales are skyrocketing, thanks to services like iTunes and the revamped Napster. They have brought over $1 billion in revenue to the industry, nearly cutting a six-year slide in half in a one-year period. Billboard now includes digital albums, singles and ring tones in its collection of charts.
With failing marketing strategies and falling sales, the record industry has thought of new, creative ways to increase revenue. Universal made a deal with video sharing site YouTube to license material for a cut of the Web site’s advertising profits. Social networking sites like MySpace help introduce audiences to new music and have already made an impact on the recording industry. Gunn said he saw the convergence of digital media coming a long time ago.
“Mom-and-pop and other small record stores are still facilitating breaking new artists,” he said. “There is a long way to go before record stores disappear.”